Correlation Between Fathom Digital and ClearSign Combustion

Can any of the company-specific risk be diversified away by investing in both Fathom Digital and ClearSign Combustion at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Fathom Digital and ClearSign Combustion into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Fathom Digital Manufacturing and ClearSign Combustion, you can compare the effects of market volatilities on Fathom Digital and ClearSign Combustion and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Fathom Digital with a short position of ClearSign Combustion. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fathom Digital and ClearSign Combustion.

Diversification Opportunities for Fathom Digital and ClearSign Combustion

-0.67

Correlation Coefficient

Fathom Digital  ClearSign Combustion

Excellent diversification

The 3 months correlation between Fathom and ClearSign is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Fathom Digital Manufacturing and ClearSign Combustion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ClearSign Combustion and Fathom Digital is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Fathom Digital Manufacturing are associated (or correlated) with ClearSign Combustion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ClearSign Combustion has no effect on the direction of Fathom Digital i.e., Fathom Digital and ClearSign Combustion go up and down completely randomly.

Pair Corralation between Fathom Digital and ClearSign Combustion

Given the investment horizon of 90 days Fathom Digital Manufacturing is expected to under-perform the ClearSign Combustion. But the stock apears to be less risky and, when comparing its historical volatility, Fathom Digital Manufacturing is 3.48 times less risky than ClearSign Combustion. The stock trades about -0.08 of its potential returns per unit of risk. The ClearSign Combustion is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  82.00  in ClearSign Combustion on March 5, 2024 and sell it today you would earn a total of  1.00  from holding ClearSign Combustion or generate 1.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	65.0%
Values	Daily Returns

Fathom Digital Manufacturing  vs.  ClearSign Combustion

Fathom Digital Manuf

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Fathom Digital Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly abnormal basic indicators, Fathom Digital demonstrated solid returns over the last few months and may actually be approaching a breakup point.

ClearSign Combustion

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ClearSign Combustion has generated negative risk-adjusted returns adding no value to investors with long positions. Even with inconsistent performance in the last few months, the Stock's forward indicators remain relatively invariable which may send shares a bit higher in July 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Fathom Digital and ClearSign Combustion

The main advantage of trading using opposite Fathom Digital and ClearSign Combustion positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fathom Digital position performs unexpectedly, ClearSign Combustion can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in ClearSign Combustion will offset losses from the drop in ClearSign Combustion's long position.

The idea behind Fathom Digital Manufacturing and ClearSign Combustion pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.